Header Right

Saving and Investing

Risk, and our miscalculation of it, is a topic that has interested me for many years. This is the first of a few articles that I will write on the topic.

Risk mitigation? What fun is that?

You are taking bigger risks in life than I.

I have received feedback from people worrying about how much risk I have taken on by quitting my job while having a family to care for. These people mean well, but their worries are completely misplaced. Not only is my lifestyle relatively safe, but I actually argue that you, Mr. Average American, are leading a far riskier life than I.

In many cases, what we perceive as risky and what is actually risky are completely different. For example, flying in an airplane feels much riskier than driving in a car. Many people who are afraid to fly don’t hesitate to drive or walk in a crowded city. The statistics are quite clear, however. Driving and even walking are significantly more dangerous modes of transportation.

A few years ago, I met a woman who told me of her upcoming mission trip to El Salvador. She explained that the group had planned on a trip to central Mexico, but with Mexico becoming so dangerous, the organization agreed to go to El Salvador instead. Amazed, I asked if they knew what the murder rate of El Salvador was. She had no idea, but with their trip just days away, I didn’t have the heart to tell her that it was four times as high as Mexico’s.

In my young and single days, luxurious vacations meant hitchhiking, train hopping, couchsurfing, sleeping in ditches or working as a Mexican farm laborer in exchange for beans and rice. Surprisingly, my wife and son have a different, more commonly held definition of luxury. Luckily, there is a way for us to continue traveling in true luxury but on the same hobo budget.

The actual flier I made for my wife to get her pumped up for our last free vacation.

Our government, which is comprised of an almost infinite number of Federal departments and agencies, and state, county, and local entities, etc. is filled with uncommonly generous people who have created policies and laws that reward people for making certain life choices. This incredibly complex and inefficient set of incentives encourages various behaviors, rewards constituents, employs hundreds of thousands of accountants and lawyers, and can help you financially.

Now, just to be clear, these people are being generous with other people’s money. The politicians and the agencies they run are generous in a way that helps them gain power and prestige. But, for today’s purpose, instead of dwelling on the sad reality of how politicians and political parties maintain power through the strategic taking and giving of others’ money, we are going to focus on how to take advantage of this never-ending generosity.

The outward goals of many subsidies and other government incentives are generally to promote some sort of economic growth, modify behavior so that we live more sustainably, or to promote social and economic stability or equality.* It is useful to know these goals, so we have an idea of where to start looking for these endless funds.

One question I have had to wrestle with is whether or not it is ethically acceptable to take advantage of government incentives, even if I disagree with the programs themselves. I have decided that I will not accept government funds if I have to violate my own moral code, but I will happily accept government funds whether or not I believe in the economic value of the program. For example, I would be ok with accepting a “green” tax credit for an electric vehicle even if I didn’t believe that this was a financially effective way to “save the environment.” On the other hand, I would turn down a grant that paid me to evict low income families in order to build a new football stadium (a common practice in our football loving country).[Read more…] about Taking Advantage of Government Incentives and Handouts

When I tell people that I have been unusually busy lately because I bought a mobile home, the most common response is, “Don’t you know that mobile homes depreciate?” Well, yes. Everybody knows that. That is exactly why I started looking that direction for financial opportunities. What? You are thinking. Why on earth would I decide to spend my time, energy, and money on what everyone knows are depreciating assets?

In general, when everybody says that something is a bad idea or a bad investment, I think extra hard about doing it, or investing in it. Because if everyone collectively writes something off as a bad idea, even without researching it, there is probably an opportunity to be had there, and the competition will likely be thin.

I recently had a dream. First, I saw seven fat and joyful office workers, but then seven emaciated office workers came up and ate the fat ones, yet remained sickly and thin. Then I dreamt of seven beautiful new Teslas, but there, in front of my eyes, they were replaced with seven 1980s Ford Escorts. I am not exactly sure of the meaning of this dream, but I have some ideas.

We Americans have become accustomed to living in incredible luxury and wealth, which is great, but we need to realize part of the trade off of living in a (mostly) capitalist economy is that we tolerate some economic insecurity in exchange for greater overall growth. There are many boom years, but there are also bust years. There are years where money flows freely and times where finances are tight. We know this. We can look back and easily see the trend. With this knowledge, why on earth do we live our lives like there are only good times ahead? “Refinance the house honey, I’m goin’ shopping! We can pay off the loan over the next 30 years with my secure union factory job.” [Read more…] about What Have We Learned in the Past 4,000 Years?

A few life choices can make the difference of half a million in a decade or so.

Most of us have seen diagrams that show the effects compound growth can have on an investment over a number of years. With a long enough timespan and a sufficiently high interest rate, the graphs are impressive. You know, like if you invest $100 each month, and you average 10% growth, you will have a quarter of a million dollars saved up in 30 years.

Now graphs like these look great, and mathematically they work, but the problem with them is we have to make the right decisions every month in order to have the money to invest. So for the equation to work out nice and pretty like the graph, we have to make the choices that will leave us with the leftover cash every month to invest. In this post we will look at a couple of life choices that will make the difference of significantly more than $100/month.[Read more…] about The Compound Effect of Our Life Decisions